SEC Approves Ethereum ETF, Bringing ETH Closer to Industry Product

The United States Securities and Exchange Commission (SEC) has approved the first spot Ethereum exchange-traded fund (ETF), marking a significant milestone for the cryptocurrency industry. The decision, announced today, allows asset managers such as Grayscale, Fidelity, and Bitwise to launch ETFs that directly track the price of Ethereum (ETH).

Ethereum rose 2% on the news and was trading at $3,900 at press time, according to data from CryptoSlate.

The approval came after a rigorous application process and extensive market analysis. Grayscale's Chief Legal Officer Craig Salm previously emphasized that the SEC had already addressed key issues when approving the spot Bitcoin ETF, and this also applies to the Ethereum ETF. These issues include the creation and redemption process, cash vs. physical trading, and custody concerns. Salm emphasized that the SEC's previous engagement with Bitcoin ETF issuers laid the groundwork for the Ethereum ETF, and noted that the strong correlation between ETH futures and spot prices was a compelling factor for approval.

The SEC's decision comes after a period of uncertainty and skepticism among market analysts. Bloomberg analyst Eric Balchunas previously estimated a 25% chance of approval by May 23, citing a lack of SEC involvement compared to the Bitcoin ETF approval process. However, the approval of a spot Bitcoin ETF earlier this year, Hong Kong's approval of an ETH ETF, and recent crypto victories in Congress had raised hopes among crypto advocates, even as the SEC has historically taken a cautious stance under Gary Gensler's leadership.

The approval process included a public comment period, during which the SEC sought feedback on various aspects of the proposed ETF, including fund custody, creation and redemption models, sponsorship fees, etc. This phase mirrors the approach taken with the Spot Bitcoin ETF application, encouraging feedback from U.S. citizens and organizations.

The approval of the Spot Ethereum ETF is expected to have a significant impact on the digital asset market. Hong Fan, president of cryptocurrency exchange OKX, noted that although Ethereum prices have risen this year, they have lagged behind Bitcoin's rise, and this gap is likely influenced by market expectations of the SEC's decision. The approval is expected to boost investor confidence and increase market liquidity.

Several issuers have filed applications to list ETFs on the NYSE Arca exchange, with Coinbase Custody acting as custodian. Bitwise's analysis has shown a strong correlation between the ETH spot market and the CME ETH futures market, a key factor in meeting the SEC's requirement to monitor for potential market manipulation.

Despite the positive results, some industry participants expressed concern about the SEC's approach. Participants in a recent meeting with the SEC said the discussions were one-sided and that SEC staff refrained from making substantive comments about the proposal. This was in contrast to the detailed discussions that took place before the SEC approved the spot Bitcoin ETF.

The approval comes amid ongoing regulatory scrutiny over Ethereum's classification as a security or a commodity. The SEC is reportedly investigating Ethereum's regulatory classification, adding uncertainty to the outlook for approval. However, today's decision signals a favorable stance toward Ethereum-based financial products, indicating that Ethereum may be considered a commodity.

This approval reflects growing interest among traditional investment firms in crypto-asset financial products and marks a milestone for the crypto industry. As the market reacts to this move, stakeholders will be closely monitoring the performance and impact of these newly approved ETFs.

Mentioned in this article